China’s Disappearing Data: The Saga Continues

Official statistics suggest small-business lending—a crucial ingredient for growth—is booming. The truth is less rosy, but not as dire as it was.

By Nathaniel Taplin


Staff members work in an e-commerce company in Yiwu, east China, last year. Photo: Tan Jin/Zuma Press


How are small businesses, the engine of China’s spectacular rise over the past 30 years, doing these days? The answer depends on which regulator you ask—and which data set you believe.

Last year’s credit crunch for Chinese entrepreneurs—a side effect of a brutal crackdown on shadow banking—had by early 2019 become bad enough to seriously alarm China’s leadership.

Irate officials told China’s biggest banks to boost small-business loans by a massive 30% in 2019. Lo and behold, this goal is set to be handily beaten. Outstanding small-business loans from China’s five biggest banks were up 48% from 2018 levels in September, according to China’s banking regulator.


But this doesn’t tell investors the full story.

Official data has always given a better read on large, state-owned firms than small, private ones. Recently, though, eyeballing China’s private sector has gotten even harder. The People’s Bank of China hasn’t updated its breakdown of loans by ownership (state, private, foreign-owned) since 2016—although the data clearly still exists, notes research consultancy Gavekal Dragonomics, since officials occasionally cite figures piecemeal.

In 2018, the central bank also stopped publishing its longstanding series on small-business lending, replacing it with a new metric called “inclusive financing" for small business. This new category is growing rapidly: Loans outstanding were up 23% on the year in the third quarter. But it is also based on a more restrictive definition of “small business”—meaning rapid growth comes from a low base.

“It is hard to avoid the cynical conclusion that since the late-2018 liquidity crisis for private firms, the relevant data series have become too politically sensitive to release systematically,” write Gavekal’s analysts.

Luckily, there are still clues out there on how things really stand. What those suggest is improvement since the dark days of late 2018, but still a markedly worse business environment than 18 months ago.

China’s banking regulator has its own series on small-business lending. This shows loans up 10.1% on the year in the third quarter. That is slightly better than the feeble 8.9% growth logged in late 2018, but a far cry from 23% or 48% growth.

Another hint comes from the bond market. Private companies are still defaulting, but in the last few months they have also started paying back much more of their bond debt, data from Wind shows. One explanation is that small businesses lucky enough to qualify for cheap “inclusive financing” loans from China’s big five banks are using them to pay off expensive bond debt, rather than refinancing through the bond market.

AA-minus bond yields and the overall average yield on bank loans both stand at around 5.5%. But the average rate on new small-business loans from the big five banks was 4.75% year to date. So even if overall lending hasn’t risen that fast, some small businesses have benefited from a big rate cut.

Rebounding profits in the electronics industry and a positive trend in the privately compiled Caixin manufacturing purchasing managers index also indicate that matters, while still difficult, are improving. To be sure, there are signs of renewed weakness in overall credit growth that could derail the recovery. So could new U.S. tariffs on imports from China, still set to be introduced on Dec. 15.

Taking the temperature of China’s economy often involves a scavenger hunt for reliable data, but it can be done.

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